Top Small-Cap Stocks

JXN, VTNR, and ASC are top for value, growth, and momentum, respectively.

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Small Cap Stocks.

The top small-cap stocks this month include three companies have soared at least 200% during the past year as a key small company index lost a fifth of its value. Petroleum refiner PBF Energy Inc. and tanker companies Ardmore Shipping Corp. and Scorpio Tankers Inc. benefited from rising oil prices and tanker rates even as crude has pulled back in recent months.

The gains come as the small-cap Russell 2000 Index's 19% drop exceeded the Russell 1000's 15% decline over the past 12 months.Small cap equities, defined as companies with market capitalizations between $300 million and $2 billion, have risen 12% since late September after plunging to their lowest valuations in more than two decades. Bank of America says small cap stocks are poised for the biggest advance since the mid-1970s as they benefit from fiscal stimulus and the return of manufacturing to the U.S.

We look at the top small-cap stocks in three categories: best value, fastest growth, and most momentum. The data is as of Nov. 22, 2022.

Note that the valuations of some of the companies listed below may be above the generally agreed upper limit of $2 billion for a small-cap equity. While this can occur during high-volatility periods, they're still classified as small-cap because they aren't re-indexed as rapidly as their price movements. The valuations also may drop later as volatility subsides.

Best Value Small-Cap Stocks

These are the small-cap stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profit can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that you're paying less for each dollar of profit generated.

Best Value Small-Cap Stocks
  Price ($) Market Cap ($B) 12-Month Trailing P/E Ratio
Jackson Financial Inc. (JXN) 38.01 3.2 0.5
Sinclair Broadcast Group Inc. (SBGI) 18.67 1.3 0.5
Theravance Biopharma Inc. (TBPH) 10.61 0.7 0.9

Source: YCharts

  • Jackson Financial Inc.: Jackson Financial is a holding company that offers annuities to retail investors across the U.S. Its subsidiaries include Jackson National Life Insurance Co., Jackson National Life Insurance Co. of New York, and PPM America. Jackson Financial announced on Nov. 9 a quarterly dividend of $0.55 per common share payable on Dec. 15.
  • Sinclair Broadcast Group Inc.: Sinclair Broadcast Group is a diversified media company that owns, operates, and provides services to television stations in the U.S., delivering content through digital platforms, multichannel video program distributors, and other avenues. The company on Nov. 2 reported that net income rose 71% year-over-year while revenue fell by almost half for during the third quarter. Sinclair said that the deconsolidation of its local sports segment impacted results.
  • Theravance Biopharma Inc.: Theravance Biopharma is a biopharmaceutical company that discovers, develops, and markets medicines for a variety of respiratory and pulmonary illnesses.

Fastest Growing Small-Cap Stocks

These are the top small-cap stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax laws or restructuring costs) that may make one figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

Fastest Growing Small-Cap Stocks
  Price ($) Market Cap ($B) EPS Growth (%) Revenue Growth (%)
Vertex Energy Inc. (VTNR) 8.60 0.7 133.3 1,490
DMC Global Inc. (BOOM) 18.27 0.4 2,200 159.7
Chegg Inc. (CHGG) 28.33 3.6 2,360 -4.2

Source: YCharts

  • Vertex Energy Inc.: Vertex Energy produces and distributes both conventional and alternative fuels. It is an environmental services and energy transition company that recycles industrial waste streams. Vertex reported this month that net income nearly tripled YOY on nearly 15-fold increase in revenue growth during the third quarter. A $47.7 million reversal of unrealized derivative losses and other non-recurring items impacted profits.
  • DMC Global Inc.: DMC Global is a holding company that provides architectural building products, metal manufacturing services, and well completion solutions.
  • Chegg Inc.: Chegg is an education company that operates a platform for mentoring and homework help services as well as textbooks and textbook rentals. Chegg in early November reported a 37-fold increase in net income on as revenue fell. The company said a one-time tax benefit was the main driver of profits.

Small-Cap Stocks With the Most Momentum

These are the small-cap stocks that had the highest total return over the past 12 months.

Small-Cap Stocks With the Most Momentum
  Price ($) Market Cap ($B) 12-Month Trailing Total Return (%)
Ardmore Shipping Corp. (ASC) 15.15 0.6 285.5
PBF Energy Inc. (PBF) 47.36 5.8 266.4
Scorpio Tankers Inc. (STNG) 51.87 2.9 253.0
Russell 1000 N/A N/A -14.7
Russell 2000 N/A N/A -19.1

Source: YCharts

  • Ardmore Shipping Corp.: Ardmore Shipping is a Bermuda-based company that owns and operates tankers carrying chemicals, oil, and other products. It provides voyage charters, time charters, and commercial pools.
  • PBF Energy Inc.: PBF Energy is a holding company that, through subsidiaries, refines petroleum and supplies related products. Its products include transportation fuels, lubricants, heating oil, and feedstocks. The company's quarterly dividend of $0.20 per share of Class A common stock is payable on Nov. 29.
  • Scorpio Tankers Inc. : Scorpio Tankers, based in Monaco, is a leading international transporter of refined petroleum products. The company's fleet consists of 131 wholly owned, finance leased or chartered-in tankers.

Things to Consider When Analyzing Small-Cap Stocks

Management Quality: A competent management team is essential for any company, let alone a smaller one trying to establish itself in the market. Potential investors should undertake some basic online research on the key people within the company, such as the CEO and chief financial officer (CFO). Do they have a track record of running successful businesses? Also, see if the leadership team owns shares in the company. Company insiders owning stock indicates a commitment to success and aligns their interests with those of the shareholders.  

Growing Sales: Small-cap companies typically have limited cash flow—therefore, they must generate healthy sales. As a rule of thumb, small-cap investors should look for stocks with an annual revenue growth rate of at least 20%, which indicates that a company has the potential for disruptive innovation within its industry and is well positioned to generate a future profit. Investors can find this information on Yahoo! Finance under the "Financials" tab, which shows a company's revenue for the past three years.

High Operating Margins: A company's operating margin represents how efficiently it can generate profit through its primary operations before paying interest and tax. When investing in small caps, it is a good idea to look for consistently increasing operating margins, as this indicates that a company is good at turning sales into profits.

Advantages of Small-Cap Stocks

Growth Potential: Small-cap stocks provide investors with significant upside by getting in early before a company potentially goes on to become an industry leader. Moreover, small-cap stocks with a market capitalization of under $1 billion can double in value much easier than companies like Amazon or Apple that have $1 trillion-plus market caps, as it takes far less money to move their share price. Additionally, a small-cap stock that goes on to realize rapid growth can gain the attention of Wall Street analysts and institutional investors, which can increase shareholder returns even further.

Less Competition from Larger Investors: Institutional investors, such as banks, hedge funds, and REITs, typically stick to investing in large-cap stocks, often overlooking many small-cap opportunities. This allows retail investors to buy the story of a future company of tomorrow without competing with traditional Wall Street money.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended to be a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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